Innovative, homogenous and structured risk valuation approaches have played a unique role in reducing risk exposure and uncertainty surrounding insurance companies. However, market resilience, lack of information and specialty business require a tune-up in subjective and swung risk valuations. A structured approach to risk evaluation of new and existing clients, based on a quantitative framework, can benefit a business by simplifying internal and external processes.

A holistic risk valuation approach requires objective and accurate estimations of the maximum possible loss (MPL) and the normal loss expectancy (NLE), which both rely on quantitative analysis. However, novel approaches to risk also emphasize the importance of risk prevention to benefit insurance companies’ valuations. To support this methodology, a structured framework, based on both quantitative analysis and loss prevention, can provide a flawless tool for risk evaluation. This structured framework supports the insurance company, not only in the underwriting process of new clients by evaluating their risk profiles, but also in the optimization of their existing portfolios by prioritizing the areas of investment in the current business.

Insurance companies sometimes cannot afford or do not want to invest in the development of both structured loss prevention services and an objective tools. A quantitative framework approach would allow these companies to rely on effective risk evaluation processes. In addition to this, the tool targets insurance companies that lack effective and accurate valuation models and want to invest in upgrading their existing tools to exploit their maximum potential value.

In complex and embedded situations, in which market resilience, lack of information and an increasing number of specialty industries are the main threats, a quantitative framework is key to gaining the necessary knowledge to face risk evaluation. In fact, the framework gives insurance companies and first-hand users a homogeneous, 360-degree understanding of the situation, which is concise and objective at the same time, to make data-driven decisions. The benefits of the tool are many: access to a wide range of information, in order to develop cost-benefit-based decision-making, knowledge acquisition, intergenerational transmission and maintenance.

Risk profiling has traditionally been carried out by insurance companies’ experts, who counted on their personal experience to define strengths and criticalities of each site through desk analysis and site visits. However, this method is highly subjective and, therefore, it is not appropriate to compare different sites, especially if different experts carried out the analyses.

To overcome this problem, cooperation between insurance companies and their clients can prevent avoidable economic losses and reduce clients’ risk exposure, which, in turn, benefits all shareholders – insurance companies, their clients and society. In fact, a better understanding of a client’s risk exposure can help all involved parties:

Insurance companies make data-informed decisions and define more adequate policies; they limit their own risk exposure and can, in turn, offer more competitive products than other companies that cannot assess risks as accurately.

Clients are incentivized to improve internal risk management, in which improvements and good practices are acknowledged and reflected in the insurance premiums.

Society and stakeholders as a whole are less exposed to risks; over time, businesses become more economically, socially and environmentally sustainable.